City Spy: Glencore's Chinese problem

Thursday 16 June 2011 08:22 BST

Glencore: Ivan Glasenberg

Here is the trade Glencore's Ivan Glasenberg isn't talking about, but everyone else in the commodities world is. Your wealthy Chinese businessman wants to invest in the local property market. But, to rein in already rampant price rises for houses and offices, Chinese banks have been ordered by the government to limit lending for those looking to speculate in property. So our friend gets a loan to buy copper instead. He sell it for dollars, then invests the cash in property.

Just a little harmless local jiggery pokery? Perhaps not. According to specialists, this trade has been massive business which western metals traders have supplied for months and years. So big, it wildly exaggerates the figures for Chinese imports on which much of the world copper price is based.

Trouble is, it's all done on loans effectively secured on the Chinese property market. So when that stops inflating (which has already started) how's our Chinaman going to service the loan on the copper? Er... he can't. And then what happens to the copper price? Exactly.

* So Glencore leads the FTSE fallers plunging far below its debut price of 530p. Who is doing the selling? Goldman Sachs and Royal Bank of Scotland, says City Spy's man in the market. Goldman, of course, were one of the very few banks not getting fees from the float...

* Meanwhile, City Spy can't help feeling the Office of Fair Trading and boss John Fingleton were too hasty in dismissing MPs' calls for a probe into the growing number of metals warehouses being bought by JPMorgan. It seems there are many in the opaque world of commodities who agree it's worth probing. JPMorgan is one of several metal trading giants snapping up warehouses. However you dress it up, this gives JPMorgan an inside track on the market. Many metal-bashers suspect it may be hoarding scarce resources behind those huge locked doors, driving up prices. But the OFT happily responds that Jamie Dimon's geezers only have warehouses in 14 out of the 35 major locations for metals around the world. Nothing to worry about. But this doesn't answer the question: if it's not to give themselves an unfair advantage in the market, why are banks buying up all these sheds? Over to the OFT...

Airey and RTL vs Desmond in C5 spat

OUCH! Friends of former Channel 5 boss Dawn Airey and her employer, European broadcaster RTL, are less than pleased about comments made by the TV channel's new owner, Richard Desmond, earlier this week.

Desmond was cock-a-hoop as pre-tax profits at his Northern & Shell business have trebled to £30 million and he credited half of that profit rise to his ownership of Channel 5, which he bought last July. "Its proprietor believes the channel was poorly managed under previous boss Dawn Airey, who worked for RTL," said a report in The Guardian, which had a ring of authority even though there were no direct quotes attributed to Desmond himself.

Airey and RTL are unhappy with his version of events- not least because, their allies point out to City Spy, Desmond tried to keep Airey last summer but she decided to move on. Hardly a poor manager, then. Indeed, such was Desmond's high opinion of Airey that he had previously tried to recruit her a decade ago for another role.

What's more, it is understood that RTL doesn't think much of Desmond's claims that he has dramatically improved the profitability of Channel 5 - by around £10 million over the last five months of 2010, it would appear.

The RTL-Airey camp points out the TV market bounced back spectacularly during this period against the worst plunge in advertising on record in 2009 and the second half of the year is traditionally stronger too.

In which case, the old owners of Channel 5 reckon around £7 million of Desmond's profits from Channel 5 over the period are down to the improved television ad market and he deserves credit for putting on only £3 million.

* It is possible that Richard Desmond just enjoys teasing rival media bosses about their supposedly poor management skills, knowing it will cause irritation. Financial TV news channel CNBC last night broadcast a profile of Desmond in which he said of Rupert Murdoch: "I wouldn't say he's the greatest manager I've come across. Well, he spent £650 million on his [newspaper printing] plant. So, on that basis ... we should be paying £375 million for our plant but we are paying a £100 million for our plant [in Luton] and I've got to tell you, we've got the best equipment. So, I'm not impressed with certain things that he does but his company is so huge that it's very difficult for one man and he is, you know, not a youngster any more."

* What drove Richard Desmond's ambition? Apparently it was living in Friern Barnet. Desmond recalled on CNBC that when he was 10 years old, his father's gambling losses led to the family home in Edgware being sold and that proved a formative experience. "I hated every second of it," says Desmond of life in Friern Barnet. "One minute you're in a nice semi-detached, well it was a detached house in Edgware, all very nice and the next minute you're in a, in my view, a crappy flat in Friern Barnet where the windows don't open and, you know, that was a good motivation for me to sort of get going."